Airport Concession Consulting Services, LLC et al v. Sentinel Insurance Company, LTD
Filing
25
OPINION & ORDER: GRANTING Plaintiffs' Motion for Summary Judgment 17 and DENYING Defendant's Cross-Motion for Summary Judgment 16 . Signed on 6/6/2018 by Judge Marco A. Hernandez. (jp)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
PORTLAND DIVISION
AIRPORT CONCESSION CONSULTING
SERVICES, LLC, and PATRICK GLEASON,
Plaintiffs,
No. 3:17-cv-01666-HZ-1
OPINION & ORDER
v.
SENTINEL INSURANCE COMPANY, LTD,
Defendant.
Michael E. Farnell
W. Blake Mikkelsen
Parsons Farnell & Grein, LLP
1030 SW Morrison Street
Portland, Oregon 97205
Attorneys for Plaintiffs
Francis J. Maloney, III
Maloney Lauersdorf & Reiner, PC
1111 E. Burnside Street, Suite 300
Portland, Oregon 97214
Attorneys for Defendant
HERNÁNDEZ, District Judge:
This matter comes before the Court on the parties’ Cross-Motions for Summary
Judgment. ECF 16, 17. For the reasons that follow, the Court grants Plaintiffs’ Motion for
Summary Judgment [17] and denies Defendant’s Cross-Motion for Summary Judgment [16].
1 – OPINION & ORDER
FACTUAL BACKGROUND
Plaintiffs Airport Concession Consulting Services (“ACCS”) and Patrick Gleason bring
this action against Defendant Sentinel Insurance Company alleging Defendant breached its
insurance contract with Plaintiffs when it declined to defend Plaintiffs in an underlying lawsuit in
California state court.
The plaintiff in the underlying lawsuit, Diego Concession Group (“DCG”), alleged the
San Diego County Regional Airport Authority issued a request for proposals (“RFP”) on
February 2, 2011, for food service and retail concessions at San Diego County Regional Airport.
The Airport Authority hired Plaintiffs in this case, ACCS and Gleason, to provide consulting
services; to prepare the RFP, accompanying materials, and the criteria for evaluation of the
proposals; to conduct the evaluation of the proposals submitted; and to assist the Airport
Authority in making the final decisions as to which proposals to accept.
DCG submitted a proposal in response to the RFP. In July 2011 the Airport Authority
informed DCG that its proposal had not been selected, but that a second RFP regarding food
service and retail concessions at the airport was forthcoming. After the Airport Authority issued
that second RFP, DCG submitted another proposal. The Airport Authority again did not select
DCG’s proposal.
On December 19, 2012, DCG filed a lawsuit stemming from the rejections of their
proposals in which Gleason was named as a defendant. On June 5, 2013, DCG amended its
complaint in the underlying lawsuit to add claims and to name ACCS as a defendant.
On October 25, 2013, Plaintiffs tendered to Defendant their defense in the underlying
lawsuit. Together with the October 25, 2013, letter, Plaintiffs sent to Defendant the thenoperative first amended complaint and a proposed (but not yet filed) second amended complaint.
2 – OPINION & ORDER
On December 11, 2013, DCG filed its second amended complaint in the underlying
lawsuit. That second amended complaint was the same in all material respects as the proposed
second amended complaint that Plaintiffs sent to Defendant. On January 25, 2014, counsel for
Plaintiffs informed Defendant that the second amended complaint had been filed and was then
the operative complaint in the underlying lawsuit. By letter dated January 31, 2014, Defendant
denied coverage for Plaintiffs’ defense in the underlying lawsuit.
In the second amended complaint DCG alleged the Airport Authority hired ACCS and
Gleason as independent consultants to assist with the RFP and proposal-selection process as
follows:
[P]reparation of the concessions RFP and second RFP, the preparation of RFP materials
that would be disseminated to the public for bidding purposes; the preparation of criteria
for evaluation of RFP submissions; the actual evaluation of RFP submissions; the
provision of information to the Authority evaluation panel so that the latter could make
decisions as to qualifications of RFP bidders; and consultation with Authority Board
Members, staff and evaluation panel members to facilitate decisions concerning the
RFPs.
Joint Stipulated Facts and Exhibits [15] Ex. 7, ¶ 32. DCG further alleged Gleason and ACCS
engaged in the following improper conduct:
(1)
Improperly communicating with other RFP bidders while the first concessions
RFP was still pending;
(2)
Representing to prospective bidders and the general public that the RFP process
would be transparent, fair, impartial, free from personal financial gain, and consistent
with the standards identified in paragraphs 18 through 28 above, whereas in fact Gleason
and ACCS acted in a manner that would maximize the potential benefit to Gleason and
his future employer, SSP America;
(3)
Misrepresenting and misstating the qualifications of DCG to Authority officers,
employees, consultants and evaluation panel members, including false statements to the
foregoing that Plaintiff DCG was not qualified financially, did not properly respond to
the Authority’s request for financial information, was “nonresponsive” and did not meet
the RFP’s minimum qualifications when, in fact, DCG was responsive and met such
qualifications;
3 – OPINION & ORDER
(4)
Engaging in other conduct that violated public contracting and bidding statutes,
and Authority codes, by not being impartial, independent, and fair and because Gleason
and ACCS were undertaking actions aimed at maximizing the award of contracts to
Gleason’s future employer, SSP America.
Id. Ex. 7, ¶ 34. In addition, DCG alleged Gleason took a job with the largest winning bidder, SSP
America, “just weeks” after Gleason’s consulting work with the Airport Authority concluded,
and that Gleason intentionally “misevaluated” DCG’s proposal in order to benefit SSP America.
Id. Ex. 7, ¶¶ 25–27.
DCG brought several claims against Plaintiffs. First, DCG brought a claim for negligent
misrepresentation on the basis that Plaintiffs made false statements to DCG regarding
(1) limitations on communications between the Airport Authority and other parties involved in
the RFP process, and (2) the fairness and transparency of the RFP process. Second, DCG brought
a claim against Plaintiffs for fraud on the basis of their statements to DCG concerning the RFP
process. Third, DCG brought a claim against Plaintiffs for trade libel on the basis of their
statements to the Airport Authority that DCG did not meet minimum qualifications, did not
respond to requests for financial information, and was not financially responsive. Fourth, DCG
brought a claim against Plaintiffs for intentional interference with prospective economic
advantage on the basis that Plaintiffs intentionally interfered with the relationship between DCG
and the Airport Authority. Fifth, DCG brought a claim for negligent interference with
prospective economic advantage on largely the same basis. Sixth, DCG brought a claim for
unfair competition against Plaintiffs on the basis that Plaintiffs’ actions violated California
Business & Professions Code § 17200.
On September 15, 2017, Plaintiffs filed this case in the Circuit Court of the State of
Oregon in Clackamas County alleging Defendant breached its insurance contract with Plaintiffs
when it declined to provide a defense to Plaintiffs in the underlying lawsuit. On October 20,
4 – OPINION & ORDER
2017, Defendant removed the case to this Court on the basis of diversity jurisdiction under 28
U.S.C. § 1332(a)(1).
STANDARD
Summary judgment is appropriate if there is no genuine dispute as to any material fact
and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The
moving party bears the initial responsibility of informing the court of the basis of its motion, and
identifying those portions of “‘the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any,’ which it believes demonstrate the
absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)
(quoting former Fed. R. Civ. P. 56(c)).
Once the moving party meets its initial burden of demonstrating the absence of a genuine
issue of material fact, the burden then shifts to the nonmoving party to present “specific facts”
showing a “genuine issue for trial.” Fed. Trade Comm’n v. Stefanchik, 559 F.3d 924, 927–28
(9th Cir. 2009) (internal quotation marks omitted). The nonmoving party must go beyond the
pleadings and designate facts showing an issue for trial. Bias v. Moynihan, 508 F.3d 1212, 1218
(9th Cir. 2007) (citing Celotex, 477 U.S. at 324).
The substantive law governing a claim determines whether a fact is material. Suever v.
Connell, 579 F.3d 1047, 1056 (9th Cir. 2009). The court draws inferences from the facts in the
light most favorable to the nonmoving party. Earl v. Nielsen Media Research, Inc., 658 F.3d
1108, 1112 (9th Cir. 2011).
If the factual context makes the nonmoving party’s claim as to the existence of a material
issue of fact implausible, that party must come forward with more persuasive evidence to support
5 – OPINION & ORDER
his claim than would otherwise be necessary. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986).
DISCUSSION
The parties agree the substantive law of the State of Oregon applies to whether Defendant
had a duty to defend Plaintiffs in the underlying lawsuit. The Court agrees and finds Oregon
substantive law applies.
As noted, Plaintiffs contend Defendant had a duty to defend them in the underlying
lawsuit. Defendant, on the other hand, contends it did not have a duty to defend because
(1) the insurance policy does not cover any alleged conduct in the underlying lawsuit; (2) even if
Plaintiffs establish coverage in the first instance, the allegations in the underlying lawsuit fall
within a coverage exclusion in the insurance policy; and (3) Plaintiffs did not satisfy their
obligation to send to Defendant a copy of the second amended complaint after it was filed.
I.
Duty to Defend Under Terms of the Insurance Policy
“An insurer’s duty to defend, according to the widely accepted ‘four-corners’ rule, is
determined by comparing the complaint to the insurance policy.” W. Hills Dev. Co. v. Chartis
Claims, Inc., 385 P.3d 1053, 1055, 360 Or. 650, 653 (2016). “If the allegations in the complaint
assert a claim covered by the policy, then the insurer has a duty to defend.” Id. “First, the court
must determine whether the complaint contains allegations of covered conduct. If it does . . . then
the insurer has a duty to defend, even if the complaint also includes allegations of excluded
conduct.” Abrams v. Gen. Star Indem. Co., 67 P.3d 931, 935, 335 Or. 392, 400 (2003). In order
for the duty to defend to be triggered, the complaint must “without amendment” permit proof of
a covered offense. Abrams, 67 P.3d at 934, 335 Or. at 398–99. Thus, “an insurer has a duty to
defend if allegations in a complaint, even if identified as a single claim for relief, in fact state
6 – OPINION & ORDER
more than one claim for relief, at least one of which is for conduct covered by the policy.”
Abrams, 67 P.3d at 934, 335 Or. at 397–98. “By limiting the analysis to the complaint and the
insurance policy, the four-corners rule generally prevents consideration of extrinsic evidence.”
W. Hills Dev. Co., 385 P.3d at 1055, 360 Or. at 653.
The insured bears the burden to prove coverage under the insurance policy in the first
instance. ZRZ Realty Co. v. Beneficial Fire and Cas. Ins. Co., 241 P.3d 710, 716, 349 Or. 117,
127 (2010). If the insured carries its burden of proving coverage exists under the insurance
policy, the insurer then bears the burden to prove an exclusion from coverage applies. Id.
“Interpretation of an insurance policy is an issue of law.” Hunters Ridge Condo. Ass’n v.
Sherwood Crossing, LLC, 395 P.3d 892, 896, 285 Or. App. 416, 422 (2017). “The overriding
goal in construing an insurance policy is to ‘ascertain the intention of the parties.’” Id. (quoting
Dewsnup v. Farmers Ins. Co. of Or., 239 P.3d 493, 496–97, 349 Or. 33, 39-40 (2010)). The court
“determine[s] the intention of the parties by analyzing the policy’s express terms and
conditions.” Hunters Ridge Condo. Ass’n, 395 P.3d at 896, 285 Or. App. at 422; see also
Hoffman Constr. Co. of Ak. v. Fred S. James & Co. of Or., 836 P.2d 703, 706, 313 Or. 464, 469
(1992). The terms of an insurance policy are to be interpreted according to the “‘understanding
of the ordinary purchaser of insurance.’” Hunters Ridge Condo. Ass’n, 395 P.3d at 896, 285 Or.
App. at 422 (quoting Congdon v. Berg, 299 P.3d 588, 597, 256 Or. App. 73, 87 (2013)). If an
insurance policy provides a definition for a particular term, the court must apply that definition.
Hunters Ridge Condo. Ass’n, 395 P.3d at 897, 285 Or. App. at 422. “When, on the other hand, a
particular word or phrase is not defined in a policy, [the court] first look[s] to whether the word
or phrase has a plain meaning—i.e., the word or phrase ‘is susceptible to only one plausible
interpretation.’” Id. (quoting Holloway v. Republic Indem. Co. of Am., 147 P.3d 329, 334, 341
7 – OPINION & ORDER
Or. 642, 650 (2006)). “If the word or phrase has more than one plausible interpretation, [the
court] then ‘examine[s] the phrase in light of the particular context in which [it] is used in the
policy and the broader context of the policy as a whole.’” Hunters Ridge Condo Ass’n, 395 P.3d
at 897, 285 Or. App. at 422–23 (quoting Holloway, 147 P.3d at 334, 341 Or. at 650). “If, after
examining the word or phrase in that context, the ambiguity persists—i.e., two or more plausible
interpretations remain—‘any reasonable doubt as to the intended meaning of such a term will be
resolved against the insurance company.’” Hunters Ridge Condo Ass’n, 395 P.3d at 897, 285 Or.
App. at 422–23 (quoting Holloway, 147 P.3d at 334, 341 Or. at 650).
A.
Coverage
Plaintiffs, as the insureds, bear the burden to prove the allegations in the underlying
lawsuit are covered under the insurance policy in the first instance. ZRZ Realty Co., 241 P.3d at
716, 349 Or. at 127. The insurance policy between Plaintiffs and Defendant was a business
liability coverage agreement that broadly provided:
We [the insurer] will pay those sums that the insured becomes legally obligated to pay as
damages because of “bodily injury”, “property damage” or “personal and advertising
injury” to which this insurance applies. We will have the right and duty to defend the
insured against any “suit” seeking those damages. However, we will have no duty to
defend the insured against any “suit” seeking damages for “bodily injury”, “property
damage” or “personal and advertising injury” to which this insurance does not apply.
Joint Stipulated Facts and Exhibits (#15-1), Ex. 1 at 16. As relevant to this case, the policy
defines “personal and advertising injury” as “injury, including consequential ‘bodily injury’,
arising out of one or more of the following offenses: . . . Oral, written or electronic publication of
material that slanders or libels a person or organization or disparages a person’s or organization’s
goods, products or services.” Id. at 37–38.
Plaintiffs contend DCG’s trade libel and interference with prospective economic
advantage claims contain allegations that fall within the scope of the definition of “personal and
8 – OPINION & ORDER
advertising injury.” In particular, as the basis for coverage Plaintiffs rely on DCG’s allegations
that Plaintiffs misrepresented DCG’s proposal, financial qualifications, and responsiveness to the
Airport Authority. Notably, Plaintiffs do not rely on the other allegations in the underlying
complaint concerning, for example, misrepresentations to bidders and improper communications
with other bidders.
Defendant contends in summary fashion that the allegations in the underlying lawsuit do
not fall within the definition of “personal and advertising injury,” and, therefore, the insurance
policy does not impart on Defendant a duty to defend Plaintiffs. As noted, in the underlying
lawsuit DCG brought a claim of trade libel against Plaintiffs on the basis of their statements to
the Airport Authority that DCG did not meet minimum qualifications, did not respond to
requests for financial information, and was not financially responsive. DCG’s interference with
prospective economic advantage claims were based in part on the same basis.
The only conceivable basis on which to find coverage does not exist for the relevant
allegations in the underlying lawsuit is that the conduct alleged does not constitute “publication”
within the meaning of the insurance policy. “Publication” is not defined in the policy. As
relevant here, the dictionary defines “publication” as “communication (as of news or
information) to the public,” a “public announcement,” a “proclamation,” or a “legal notification.”
Webster’s New Int’l Dictionary 1836 (3d ed. 2002). The alleged conduct arguably does not fit
within the dictionary definition of “publication” because the allegedly libelous statements and
representations were made only to the Airport Authority’s staff, consultants, and evaluation
panel members, and not to the public at large. How broadly a statement or communication of
information must be broadcast in order to qualify as “publication,” however, is not altogether
clear from the dictionary definition. Because “publication” as used in the policy has more than
9 – OPINION & ORDER
one plausible interpretation, the Court must look to the context in which that term is used in the
insurance policy. See Hunters Ridge Condo Ass’n, 395 P.3d at 897, 285 Or. App. at 422–23
(quoting Holloway, 147 P.3d at 334, 341 Or. at 650).
In this instance, the context of the usage of the term “publication” indicates the parties
intended that word to take on a broad meaning. The insurance policy uses the term “publication”
in connection with material that could be actionable under reputational torts like libel and
slander. In the context of reputational torts, “‘publication or communication of the defamatory
statement is an essential element of an action for defamation.’ In general, a statement is
published when it is communicated to a third party.” Lansford v. Georgetown Manor, Inc., 84
P.3d 1105, 1111, 192 Or. App. 261, 269 (2004)(quoting Wallulis v. Dymowski, 918 P.2d 755,
758, 323 Or. 337, 342–43 (1996)). The legal definition of the word “publication” in the context
in which it is used in the insurance policy, therefore, is broader than at least a narrow
construction of the dictionary definition of the term. Because the context of the policy indicates
the parties intended to use the word “publication” as understood in the context of reputational
torts, the Court concludes the most natural reading of that term in the insurance policy is that it
applies to any alleged communication of material that may constitute libel or slander to any third
party. Even if any ambiguity remained about this point after examination of the plain meaning
and context, the Court would be compelled to construe the term “publication” against the insurer
and adopt the broader definition. The Court, therefore, finds the relevant allegations in the
underlying lawsuit clearly fall within the scope of coverage in the definition of “personal and
advertising injury.”
10 – OPINION & ORDER
B.
Testing or Consulting Errors and Omissions Exclusion
Defendant alternatively contends the allegations in the underlying lawsuit fall entirely
within the testing or consulting errors and omissions exclusion in the insurance policy. That
exclusion provides:
EXCLUSION – TESTING OR CONSULTING ERRORS AND OMISSIONS
This insurance does not apply to “bodily injury”, “property damage” or “personal and
advertising injury” arising out of:
1.
An error, omission, defect or deficiency in:
a.
Any test performed; or
b.
An evaluation, a consultation or advice given,
by or on behalf of any insured;
2.
The reporting of or reliance upon any such test, evaluation, consultation or advice;
or
3.
The rendering of or failure to render any service by you or on your behalf in
connection with the selling, licensing, franchising or furnishing of your computer
software to others including electronic data processing programs, designs,
specifications, manuals and instructions.
Joint Stipulated Facts and Exhibits (#15-1), Ex. 1 at 40. Defendant contends the conduct alleged
in the underlying lawsuit falls under the first or second subparts of the testing or consulting
errors and omissions exclusion.
1.
Subpart One: Errors and Omissions
In order for the alleged conduct to fall under the first subpart of the errors and omissions
exclusion, all relevant conduct alleged in the underlying lawsuit must “aris[e] out of” (1) “[a]n
error, omission, defect or deficiency” in (2) “[a]ny test performed” or “[a]n evaluation, a
consultation or advice given” (3) by or on behalf of the insured.
11 – OPINION & ORDER
The parties focus their analysis on DCG’s trade libel claim against Plaintiffs. Under
California law, trade libel, as alleged against Plaintiffs in the underlying lawsuit, “is an
intentional disparagement of the quality of services or product of a business that results in
pecuniary damage to the plaintiff.” J-M Mfg. Co., Inc. v. Phillips & Cohen LLP, 247 Cal. App.
4th 87, 97, 201 Cal. Rptr. 3d 782, 790 (Cal. Ct. App. 2016). “[T]rade libel requires a false
statement of fact, not an expression of an opinion.” Id. To establish a claim of trade libel, “the
statement must be made with actual malice, that is, with knowledge it was false or with reckless
disregard for whether it was true or false,” and that as a result the plaintiff “actually suffered
some pecuniary loss.” Id.
As noted, the crux of DCG’s trade libel claim was that ACCS and Gleason:
Misrepresent[ed] and misstat[ed] the qualifications of DCG to Authority officers,
employees, consultants and evaluation panel members, including false statements to the
foregoing that Plaintiff DCG was not qualified financially, did not properly respond to
the Authority’s request for financial information, was “nonresponsive” and did not meet
the RFP’s minimum qualifications when, in fact, DCG was responsive and met such
qualifications.
Joint Stipulated Facts and Exhibits [15] Ex. 7, ¶ 34. DCG alleged the misrepresentations and
misstatements “deterred the Authority from awarding contracts to DCG. As a consequence of the
conduct of ACCS and Gleason, Plaintiff DCG lost out on potential contracts with the Authority
which it anticipates to exceed $1,000,000.” Id. Ex. 7, ¶ 65. With respect to Plaintiffs’ intent,
DCG alleged in the course of a request for punitive damages:
The publication of the statements was motivated by Defendant’s fraud, malice and
oppression in that it subjected Plaintiff to cruel and unjust hardship in conscious
disregard of Plaintiff’s rights and in that it contained an intentional misrepresentation and
concealment of a material fact known to these Defendants with the intention on the part
of these Defendants of thereby depriving Plaintiff DCG of legal rights or otherwise
causing injury, as set forth above.
Id. Ex. 7, ¶ 66.
12 – OPINION & ORDER
DCG, therefore, alleged Plaintiffs made intentional, material misrepresentations to the
Airport Authority about DCG’s proposal. In the context of the entirety of the underlying
complaint, it is clear DCG alleged Plaintiffs made these misrepresentations in order to benefit
SSP America, Gleason’s future employer whom the Airport Authority selected to win the largest
share of the bids.
Although some of the alleged relevant conduct that could support a claim for trade libel
may fall within the first subpart of the errors and omissions exclusion, not all of the alleged
conduct arises out of an “error, omission, defect or deficiency.” As used in the exclusion, each of
the words “error,” “omission,” “defect,” and “deficiency” indicate that the exclusion applies to
negligent or mistaken conduct in the course of a test performed or advice or consultation given.
The allegations in the underlying lawsuit, however, clearly implicated intentional misconduct in
the course of the consulting work that Plaintiffs performed. Such intentional misconduct does not
fall within the definitions of “error,” “omission,” “defect,” or “deficiency” as those words are
used in the insurance policy.1
On this record, therefore, the Court concludes the relevant allegations in the underlying
lawsuit do not entirely fall under the first subpart of the testing or consulting errors and
omissions exclusion.
1
Plaintiffs invite the Court to consider extrinsic evidence in support of its contention that the
“errors and omissions” clause does not exclude coverage for claims of reputational torts. In
particular, Plaintiffs contend “errors and omissions” is a term of art, and, therefore, the Court
should consider extrinsic evidence like statements on Defendant’s website in determining
whether the “errors and omissions” clause excludes coverage in this case. The Court need not
determine whether it is appropriate to consider the extrinsic evidence, however, because it
concludes the plain meaning of the “errors and omissions” clause does not relieve Defendant of
its duty to defend.
13 – OPINION & ORDER
2.
Subpart Two: Reporting of or Reliance upon a Test, Evaluation,
Consultation, or Advice
As noted, the testing or consulting errors and omissions exclusion also provides: “This
insurance does not apply to ‘bodily injury’, ‘property damage’ or ‘personal and advertising
injury’ arising out of . . . [t]he reporting of or reliance upon any such test, evaluation,
consultation or advice.” It is clear the allegations in the underlying lawsuit do not implicate
Plaintiffs’ or DCG’s “reliance upon” any test, evaluation, consultation, or advice because
Plaintiffs allegedly performed the evaluation and gave the consultation or advice to the Airport
Authority. Accordingly, in order for the errors and omissions exclusion to apply, the entirety of
the relevant allegations in the underlying lawsuit must qualify as arising out of the “reporting of
. . . any such test, evaluation, consultation or advice.” The parties do not interpret this provision,
and it does not appear there is any caselaw specifically addressing this portion of the errors and
omissions exclusion.
The Court finds the use of the word “such” indicates the second subpart excludes
coverage for liability that stems from the reporting of or reliance upon a “test, evaluation,
consultation or advice” that contains an “error, omission, defect or deficiency.” In the second
subpart, “such” serves as a shorthand reference to “error, omission, defect or deficiency” as set
out fully in the first subpart. Whereas the first subpart excludes from coverage liability that arises
out of mistakes made in the analysis or testing that leads up to the reporting of the results of the
test or evaluation, the second subpart excludes from coverage liability that arises out of the
reporting of or reliance upon the mistaken test, evaluation, consultation, or advice.2 The
2
An alternative interpretation could be that the second subpart excludes coverage of liability that
arises from the reporting of or reliance upon any test performed or evaluation, consultation, or
advice given. Although under this interpretation the second subpart would exclude coverage for
liability arising from mistaken or intentional conduct, this possible alternative interpretation does
14 – OPINION & ORDER
allegations in the underlying lawsuit, therefore, are not excluded for the same reason as in
subpart one; i.e., at least some of the alleged conduct in the underlying lawsuit stems from
intentional misconduct, and not from any alleged “error, omission, defect or deficiency.”
Accordingly, on this record the Court concludes the errors and omissions exclusion does
not relieve Defendant of the duty to defend Plaintiffs in the underlying lawsuit.
II.
Failure to Provide Notice of Second Amended Complaint
Defendant finally contends it did not have a duty to defend Plaintiffs in the underlying
lawsuit because Plaintiffs did not sufficiently give Defendant notice of the filing of the second
amended complaint.
As noted, on October 25, 2013, Plaintiffs tendered to Defendant their defense in the
underlying lawsuit. Plaintiffs sent to Defendant the then-operative first amended complaint in the
underlying lawsuit and a proposed (but not yet filed) second amended complaint together with
that letter. On December 11, 2013, DCG filed its second amended complaint in the underlying
lawsuit. On January 25, 2014, counsel for Plaintiffs informed Defendant that the second
amended complaint had been filed and was at that time the operative complaint in the underlying
lawsuit. The second amended complaint that DCG filed on December 11, 2013, was similar in all
material respects to the proposed second amended complaint that Plaintiffs sent to Defendant on
October 25, 2013. By letter dated January 31, 2014, Defendant denied coverage for Plaintiffs’
defense in the underlying lawsuit.
Defendant contends Plaintiffs’ failure to timely provide it with a copy of the second
amended complaint in the underlying lawsuit constitutes an independent basis on which to deny
not help Defendant because it only creates an ambiguity that the Court would be required to
resolve in Plaintiffs’ favor. See Hunters Ridge Condo Ass’n, 395 P.3d at 897, 285 Or. App. at
422–23 (quoting Holloway, 147 P.3d at 334, 341 Or. at 650).
15 – OPINION & ORDER
coverage. “Notice of the claim is a condition precedent to the duty to defend.” Oregon Ins. Guar.
Ass’n v. Thompson, 760 P.2d 890, 893, 93 Or. App. 5, 11 (1988). In determining whether it has a
duty to defend, an insurer must generally only consider the complaint that has been filed at the
time that the insured tendered the claim to the insurer. See W. Equities, Inc. v. St. Paul Fire and
Marine Ins. Co., 56 P.3d 431, 432 n.1, 184 Or. App. 368, 370 n.1 (2002).
In this case, however, Plaintiffs attached the proposed second amended complaint to the
October 25, 2013, tender letter together with a statement advising Defendant that counsel for
DCG indicated DCG anticipated filing the second amended complaint. After DCG filed a second
amended complaint that was materially similar to the proposed second amended complaint that
Plaintiffs sent to Defendant, Plaintiff notified Defendant of that filing on January 25, 2014, six
days before Defendant sent the letter denying coverage. Defendant, therefore, was aware of the
substance of the second amended complaint on October 25, 2013, and was on notice that the
second amended complaint had been filed before Defendant issues its coverage determination.
On this record, the Court concludes Plaintiffs provided Defendant with adequate notice of
the second amended complaint.
CONCLUSION
For these reasons, the Court grants Plaintiffs’ Motion for Summary Judgment [17] and
denies Defendant’s Cross-Motion for Summary Judgment [16].
IT IS SO ORDERED.
DATED this _____ day of May, 2018.
______________________________
MARCO A. HERNÁNDEZ
United States District Judge
16 – OPINION & ORDER
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